BILL ANALYSIS Ó
AB 1317
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Date of Hearing: April 21, 2015
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Jose Medina, Chair
AB 1317
(Salas) - As Introduced February 27, 2015
SUBJECT: Public postsecondary education: executive officer
compensation
SUMMARY: Establishes requirements regarding executive
compensation increases at the California State University (CSU),
and requests compliance by the University of California (UC).
Specifically, this bill:
1)Finds and declares all of the following:
a) On November 19, 2014, the UC Regents voted on a
"five-year stability plan," which establishes annual
tuition and student fee increases of up to 5 percent per
year for both undergraduate and graduate students, with
increase levels contingent on state funding;
b) While increasing tuition costs for students, the regents
also approved compensation increases of up to 20 percent
for several chancellors and executives;
c) Twelve CSU campuses have imposed "student success fees"
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of up to nearly eight hundred dollars ($800) per student,
charged in addition to tuition, to augment academic
services and hire faculty;
d) On November 13, 2014, the CSU Trustees approved a
3-percent compensation increase for top executives;
e) As public institutions designed to serve students, state
universities have a responsibility to keep education
accessible and affordable and to prioritize student needs
over executive pay; and,
f) The State of California has an interest in holding state
universities accountable and maintaining affordability in
higher education.
2)Prohibits the CSU trustees from increasing the compensation of
any executive officer when the amount of mandatory systemwide
student fees and tuition of the university has been increased
at any time in the immediately preceding four years.
3)Defines "executive officer" to include, but not be limited to,
the CSU Chancellor, a vice chancellor, an executive vice
chancellor, the general counsel, the trustees' secretary, or a
president of a campus.
4)Applies the aforementioned restriction only to executive
officers that enter into or renew contracts for employment
with CSU on or after January 1, 2016.
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5)Requests the UC Regents to comply with the aforementioned
prohibitions.
EXISTING LAW:
1)Establishes UC as a public trust and confers the full powers
of the UC upon the UC Regents. The Constitution establishes
that the UC is subject to legislative control only to the
degree necessary to ensure the security of its funds and
compliance with the terms of its endowments. Judicial
decisions have held that there are three additional areas in
which there may be limited legislative intrusion into
university operations: authority over the appropriation of
state moneys; exercise of the general police power to provide
for the public health, safety and welfare; and, legislation on
matters of general statewide concern not involving internal
university affairs. (Constitution of California, Article IX,
Section 9)
2)Declares the Legislature's intent that no proposal relating to
the salary, benefits, perquisite, severance payments (except
in the case of a dismissal or litigation settlement),
retirement benefits or any other form of compensation paid to
an officer of the UC become effective unless specified notice
requirements have been met and action taken in an open session
meeting of the regents. (Education Code Section 92032.5)
3)Establishes the CSU Trustees to administer the CSU and
provides the Trustees authority and directives regarding
personnel matters. (EDC Section 66600 and 89500 et.seq.)
4)Requires proposals for the compensation package of specified
CSU executive officers (the Chancellor, president of an
individual campus, vice chancellor, treasurer, general counsel
and the trustee's secretary) occur in open sessions of a
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committee of the trustees and the full board of trustees, as
specified. (EDC Section 66602.7)
FISCAL EFFECT: Unknown
COMMENTS: Purpose of this bill. According to the author,
during the last decade, both the CSU and UC systems have
increased tuition while also increasing executive pay for some
executive officers. The author argues that "at a time when
access, affordability, and diversity are in question, we need to
ensure our institutions are utilizing the limited public
resources appropriately." The author argues this measure will
"help foster the transparency in our educational systems so that
the public continues to have confidence in our institutions
while allowing the CSU and UC to provide high quality
education."
Background on CSU Executive Compensation. In November of 2007,
the Bureau of State Audits (BSA) released an audit (Report
2007-102.1) reviewing the CSU compensation practices. The BSA
revealed, among other findings, that CSU had not developed a
system to adequately monitor adherence to compensation policies,
concerns had been raised about the methodology used to justify
salary increases for some executives, and some Management
Personnel Plan employees received questionable compensation
after they were no longer providing services to the university
or were transitioning to faculty positions. The BSA made a
number of recommendations to improve CSU compensation policies,
including, improving systemwide data collection, working with
interested parties to adjust methodology for determining salary
increases, and establishing clear expectations for transitioning
executives.
CSU executive compensation reforms. In July 2011, the Trustees
appointed a special committee to review the policy regarding the
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selection of presidents, as well as the policies and practices
with respect to executive compensation. In January 2012, the
Trustees adopted a new compensation policy for the CSU which,
among other things, expressed intent to compensate in a manner
that was fiscally prudent in respect to the system budget and
state funding, to evaluate compensation based on periodic market
comparison surveys, to have presidential compensation guided by
the mean of the appropriate tier of comparison institutions, as
well as other factors, and until otherwise determined by the
Trustees, to cap the amount of the initial base salary paid to a
new campus president from public funds at the previous
incumbent's pay. Salary compensation above the incumbent's base
pay deemed necessary to retain the best leader could be paid
from foundations, but not in excess of 10% of the base salary.
In addition, in November 2012 the new CSU Chancellor voluntarily
took a 10 percent reduction in the compensation package he was
offered by the CSU Trustees.
Background on UC Executive Compensation. In May of 2006, the
Bureau of State Audits (BSA) released an audit (Report 2006-103)
reviewing UC compensation practices and finding that stricter
oversight and greater transparency were needed to improve
practices. The BSA's recommendations included improving use of
the Corporate Personnel System to track employee compensation,
tracking approved exceptions to UC compensation policies and
identifying unauthorized exceptions to policies, and requiring
highly paid university employees to disclose all forms of
compensation.
UC Compensation Reforms. In response to issues raised by audits
and management reviews, legislative hearings, and media reports,
UC enacted several reforms to improve transparency and
accountability regarding compensation practices. These reforms
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include providing an annual report to the Legislature on senior
management compensation and reform efforts, annually auditing
senior management compensation, establishing new policies
governing oversight and market appropriateness of senior
management compensation, expanding public disclosure of
salaries, and establishing comprehensive and ongoing review of
compensation-related policies.
Issues to consider. This bill would place policies governing
executive compensation in statute rather than leaving these
decisions to the UC Regents and CSU Trustees. The committee may
wish to consider the following:
1)Will eliminating pay increases for executives for four years
after a fee increase affect California's ability to retain
high quality professionals? Will this policy result in
increased turnover in executive positions? The committee may
wish to amend this bill to specify that the limitation applies
for two budget years, rather than four calendar years.
2)The fee levels set by the institutions are historically tied
to the funding decisions made in the annual Budget Act by the
Legislature and the Governor. Should the discretion of CSU and
UC to compensate leadership be tied to budget related
decisions of the Legislature and the Governor? How do fee
levels link to the management and leadership needs of the
institutions?
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3)In February 2015, the Joint Legislative Audit Committee
approved a Bureau of State Audits (BSA) review of UC. The
scope of the audit includes a review of compensation packages
for top executives and management for the most recent five
years. BSA is tasked with identifying trends and comparing
compensation packages to other public and private
universities. Is it appropriate to wait for the results of
this audit, which is scheduled to begin in July, prior to
enacting statutory changes?
4)As drafted, this bill would restrict the use of funds for
compensation regardless of the source. Should the Legislature
restrict the discretion of a foundation to use private funds
to supplement public funding for executive salaries? The
author has agreed to accept amendments to clarify that the
limitation imposed by this bill does not impact the use of
private funds to supplement executive salaries.
Related legislation.
AB 837 (Hernández) was approved by this committee on April 8,
2015. AB 837 would cap UC employee salaries at $500,000
annually, and require reporting on salaries and funding sources.
Prior legislation.
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SB 8 (Yee) of 2013, held in the Senate Education Committee,
would have established conditions, similar to those contained in
this bill, on granting executive compensation increases by
California State University (CSU) for any employment contract
after January 1, 2014; UC was requested to comply with these
provisions.
AB 1561 (Hernández) of 2012, held in the Assembly Appropriations
Committee, would have limited compensation increases for certain
executive-level positions at UC and CSU.
AB 1684 (Eng) of 2012, held in the Assembly Appropriations
Committee, would have limited the pay of California Community
College Chancellors to no more than twice the highest faculty
member salary.
SB 952 (Alquist) of 2012, held in the Assembly Appropriations
Committee, would have limited administrator salary increases
using state fund to 10% above the predecessor's salary.
SB 967 (Yee) of 2012, which failed passage in the Senate
Education Committee, capped compensation at 5% of the
predecessor's total compensation.
SB 1368 (Anderson) of 2012, held in the Senate Governmental
Organization Committee, would have limited the annual rate of
salary of a state officer or employee to the annual salary
authorized to be received by the Governor.
ABx1 39 (Hernández, 2011), which was not heard by the
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Legislature, was substantially similar to AB 837.
SBx1 26 (Lieu, 2011), which was not heard by the Legislature,
established various limitations on executive compensation.
SB 217 and SB 86 (Yee) of 2009 were similar to SB 967. SB 217
was held in the Assembly Appropriations Committee and SB 86 was
vetoed by Governor Schwarzenegger.
REGISTERED SUPPORT / OPPOSITION:
Support
None on File
Opposition
California State University
University of California
Analysis Prepared by:Laura Metune / HIGHER ED. / (916) 319-3960
AB 1317
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